Base Resources Ltd (ASX: BSE) is an Australian based, African focused, mineral sands producer and developer with a track record of project delivery and operational performance. It operates the Kwale Project in Kenya and is developing the Toliara Project in Madagascar. Mineral sands are used to manufacture everyday “quality-of life” items such as paints (ilmenite and rutile) and ceramic tiles (zircon). Base Resources has as a market capitalisation of around $175 million.

What are the key points of Base Resources quarterly report?

Base Resources production levels has remained strong in Q3FY20. Ilmenite Q3FY20 production (in tonnes) is 105,035 (Q2FY20 production level 91,406), rutile Q3FY20 production (in tonnes) is 23,683 (Q2FY20 production level 19,812), zircon production (in tonnes) is 9,163 (Q2FY20 production level 7,923) and zircon low grade Q3FY20 production (in tonnes) is 780 (Q2FY20 production level 546).

In addition to strong production levels, unit revenue per tonne of product sold for Q3FY20 is US$476 million, while unit operating costs per tonne produced for Q3FY20 is US$128 million. This represents a revenue: cost of goods sold ratio of 2.7.

Base Resources Kwale Operations continue uninterrupted with health and safety procedures implemented to minimise the risk of COVID-19 to personnel and surrounding communities. However, the Toliara Project FID, expected in September 202, has delayed due to COVID-19 impacts. No guidance is provided when this might occur.

What is the outlook for Base Resources?

Base Resources has announced that FY20 production guidance remains unchanged. FY20 production is as follows: Rutile – 75,000 to 81,000 tonnes, ilmenite – 335,000 to 355,000 tonnes, zircon – 29,000 to 32,000 tonnes.

In Q3FY20, Base Resources spent around $US3.3 million on the Toliara Project in Madagascar (Q2FY20 US$6.8 million). Base Resources have made 2 important announcements regarding this project: Firstly, completion of the French translation of the DFS, required to support the Company’s Large Mining Investment Law (LGIM) application. Secondly, commencement of front-end engineering design (FEED) activities. The Toliara Project is a major ilmenite project (with zircon as a by-product) which could produce annual cashflow of over $US100 million over the 33 years plus project life. Production was due to commence in late 2022 but now this has been delayed to possibly sometime in 2023. The timing of the project is expected to coincide with emerging supply shortages in the industry.

The continued success of the Kwale Project should provide Base Resources with enough cash flow to help fund the Toliara Project.

Regarding the Extensional exploration at the Kwale Project in Kenya, progress this quarter has slowed due to the Kenyan Government focusing on combating COVID-19. However, a concept study for mining the 171Mt North Dune Mineral Resources estimate (136Mt Indicated and 34Mt Inferred) was completed in early January 2020, with a pre-feasibility study commencing in the quarter.

What is the market reaction?

The market reaction to Base Resources announcement is neutral. Base Resources share price remains unchanged at 15 cents.


 

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April 16, 2020